P. J. O.Rourke on the Free Market

P.J. Has an excellent piece on how the Republicans 'blew it'. Here's an interesting paragraph:

What will destroy our country and us is not the financial crisis but the fact that liberals think the free market is some kind of sect or cult, which conservatives have asked Americans to take on faith. That's not what the free market is. The free market is just a measurement, a device to tell us what people are willing to pay for any given thing at any given moment. The free market is a bathroom scale. You may hate what you see when you step on the scale. "Jeeze, 230 pounds!" But you can't pass a law making yourself weigh 185. Liberals think you can. And voters--all the voters, right up to the tippy-top corner office of Goldman Sachs--think so too.

I agree. The market fundamentally provides a bunch of signals. You can ignore them -- and this is true whether you're an automaker or a lawmaker -- at your peril.

The article offers a lot of insight with less-than-usual, but still good, humor. I recommend you give it a read.

Here's another sample of what you can expect:

If we do have morals, where were they while Bosnians were slaughtered? And where were we while Clinton dithered over the massacres in Kosovo and decided, at last, to send the Serbs a message: Mess with the United States and we'll wait six months, then bomb the country next to you.

The whole thing here.

Lies, Damned lies and Naomi Klein

Cato's Johan Norberg has a detailed rebuttal on Naomi Klein's superficial claims about Milton Friedman and free-market policies made in her book, The shock doctrine. Here's a video of Norberg explaining how Ms Klein misrepresents what Friedman said:




Also see this follow up video.

I have leafed-through Klein's book. No one who has actually read Milton Friedman, will take Klein's claims seriously.

Klein's main ammunition is in the from a out-of-context quote by Friedman, who said that real change happens on a crisis, and that it will be led by ideas that are lying around at the time will be implemented. Friedman said this to emphasis the importance of working towards ideas which doesn't seem plausible right now, but might be some day, when people are looking for new ideas, such as in a financial crisis. He didn't mean this in the sense of a natural disaster nor did he advocate disaster.

This is clearly an ideologically neutral statement. If in the current financial mess in the U.S., ideas of more regulation holds sway, that will be implemented. In the face of high commodity prices, if someone is able to convince policymakers that price-controls are a good way of handling the 'crisis' there is a chance of that happening. The former is already sort of happening, the latter doesn't seem to be, thankfully.

It is also true that most important market-reforms did happen in financial crisis, like that of Sri Lanka in 1977, when the economy was squeezed through central-planing by the previous socialist government, or in the case of Indian reforms in the early '90's. Thanks to those reforms millions today are out of poverty. But if a different set of ideas were on the table, things might have gone in another direction.

Obviously, the likes of Klein doesn't have the cognitive power needed to understand this. See Norberg's full rebuttal and also see, Tyler Cowen's take.

Creative Capitalism

Inspired by Bill Gates' speech at the World Economic Forum, someone has created a creative capitalism blog with an impressive list of contributors, ranging from Gates to Buffet to this latest piece from Jagdish Bhagwati. Even the late Milton Friedman makes a reappearance. Do Check it out.

Drew Carey on Free Trade

Drew Carey in another installment of his series at Reason.tv takes a swing at the U.S. protectionists' (Obama-types) fear mongering over NAFTA.



Something that's rarely understood by protectionist all over the world is that the biggest source of "job losses" is technology, not free trade agreements. The emergence of Digital Cameras have dented the guys who sell films. small-time Christmas/Vesak-card vendors are feeling the pinch because of SMS. Does this mean these technologies need to be banned, discouraged or taxed away at least until "everyone adjusts"? Protectionist usually don't say stuff like that.

In all economic activity, whether you buy this soap over that one, or go to KFC instead of McDonald's, you create winners and losers. Should you be fined for picking one over the other? Free Trade (or international trade) just allows you to do this across a political border. There's nothing special about international trade, that isn't also true about domestic trade, except for the fact that governments have introduced barriers. I agree with those who say, that the source of much of protectionist opposition to free trade comes from the fact that in international trade, the trading partner is a "foreigner".

If you haven't already, go See the video. It's drew carey! (I love that end bit)

Related Link :Tyler Cowen : This Global Show must go on

P.S : Now that the primaries are over, Obama is a "pro-growth, free-market guy". Heh.

Dont You Just Love the Free Market!

Now, they have porn for blind people. Thankfully, the web is not regulated.

[via India Uncut]

The Myth of the Open Economy

The Sri Lankan left (and it's modern-day 'mainstream' apologists) often point to 1977, the year when Sri Lanka started liberalizing the economy to describe anything 'bad' to do with Sri Lanka, from moral degradation, the persistence of poverty and occasionally as the root cause of the war.

Recently, when I pointed out that the partial liberalization in '77 has in fact, increased per-person income levels of Sri Lankans, a reader (and my friend) Andy, left the this comment:

Ya, it has increased incomes. But This can be hardly called great development. Countries like Singapore, the Asian Tigers have grown much faster.

Open Economy in Sri Lanka has not worked well enough. Maybe it's the war.

Now, I don't like the phrase, "Open economy" for two reasons. one, it somehow gives this notion that being open or not open to international trade is the only concern in a modern economic system, which is clearly not true. Two, in Sri Lanka the term is used as a catch-all-phrase for market liberalization. I prefer the term a free-market economy, but Sri Lanka isn't much of a free-market either, nor is it all that 'open' under any sort of definition.

To answer Andy, if at all the "Open Economy" has not worked, it's because the economy hasn't been open enough or if you ask me, isn't free enough.

Sri Lanka still has a mediocre socialist attitude towards policy.

In recent times, policymakers proposed using (and have used) price-controls to tackle inflation, we have a string of failing state enterprises, and if that's not enough we start more disasters. Investing in Sri Lanka is made difficult, with excessive restrictions on capital transactions, so on. The Central bank has lost all credibility as an independent institution and comes up with absurd theories to justify 20+% inflation. The labor market is heavily regulated, wasteful subsidies and welfare schemes which are nothing but political support systems

Entrepreneurs in Sri Lanka face high taxes, all sorts of restrictive licensing requirements and bureaucratic red tape, which results in heavy corruption. The World Bank doing business report in 2008 ranks Sri Lanka 101 of 178 countries, down 1 place from last year. We are with the worst lot when it comes to ease of doing business and things are not getting better.

We have a bloated government, the largest cabinet of ministers in the world and possibly the largest bureaucracy in the world with over a million state-sector employees for a country with 21 million people - one bureaucrat for every 20 people. India, often thought of as the worst bureaucracy only has about a 1:54 ratio of bureaucrats to people. The government spends most of our taxes on paying salaries to keep this massive bureaucracy alive, not on infrastructure, education or health, and no, not even the war effort. We simply can't afford this.

So no, Sri Lanka isn't much of a free-market. Yes, there are things we have managed to right and It's great that Sri Lanka still manages to grow, despite the government and despite the war, but things can be so much better.

There are two indices which measure how "free" an economy is. One published by the Heritage Foundation/Wall Street Journal ranks Sri Lanka 90 out of 162 countries. They are kinder, whereas the report published by the Fraser Institute ranks Sri Lanka 101 out of 142 countries. (pdf link) . The two reports differ on approach with the Heritage foundation depends on a more subjective analysis using a group of experts while the Fraser Institute relies on purely statistical analysis to come up with the rankings.

In both cases, Sri Lanka's rating is nothing to write home about, and that should tell the story why we are still a poor country. Economic Freedom promotes economic growth and prosperity and if we can have that, we can still progress despite having a war, like Ireland and so many other countries have.

How J.R. Ruined Everything

If you are a socialist, that is.

The chart below from Gapminder shows increasing incomes per person at accelerating rates after president JR Jaywardene liberalized the Sri Lankan economy in 1977. Certainly, this isn't good news for the lefties.

(a still pic from gap minder, an awesome tool. You can link to the real-time chart too)

Say what you want about JR's politics, but the fact remains - his (partial) market-based reforms did make a lot of people's lives better. We need more of it, not less.

These stats of course, wouldn't change the mind of people like this commenter to whom I dedicate the title of this post. These are obviously some fake statistics compiled as part of a neoliberal conspiracy initiated by the CIA and planted in Google gapminder.

No but seriously, Gapminder is just awesome, it converts boring numbers into enjoyable, animated and interactive graphics. See it's founder Hans Rosling's talks on TED here and here. Must See videos!

AirTel troubles

Apparently Airtel, scheduled to start operations in Sri Lanka this year, have run into some trouble. I like Airtel, it's my operator of choice whenever I'm in India, I've got good memories with it. It worked well for me, and i did do some traveling across states in remote moutanes areas. The Advert above with the two boys playing football is probably my favorite ad on TV.

I was looking forward to the increased competition, I think Air-tel could have given dialog run for their money. I think they have already woken up dialog from a monopoly lethargy and if Airtel do some of the things they do in India, they can lure in customers. Airtel as a brand will have instant recognition from anyone has table, so they have a good start. I don't think I will switch, changing numbers is a bitch unless Air-tel can give me a remarkably better deal.

As for the troubles, a few weeks back in a flight back from Delhi I met a guy from Chandigarh, who's flying to Colombo. He turned out to be a senior telecoms engineer at Airtel, flown down to SL to help with the operations here. I asked him what's taking Airtel so long to set up here, he told me they faced two main problems. one, was permissions issues - Setting up towers and that sort of thing needed all sorts of clearances from the ministry of defense, TRC, and the bureaucracy is taking time. The other, he told me is lack of telecoms engineers, He said latter is going to be a bigger problem in the long-term.

This is probably why dialog have invested in heavily University of Moratuwa, they desperately need the people. All of this is a problem of too much government. in 2006, Lirneasia, a Colombo-based policy research agency concluded the Telecom regulatory environment in Sri Lanka one of the worse in the region and heading in the wrong direction (PDF link). The impact of national security concerns since would only have worsen the situation.

It's heartening however, that the sector has grown tremendously despite having too much regulation. Often times, technology itself is a liberator, government bureaucracies cannot keep up with the dynamism of changing technologies and that's why telecoms 'work' for most people, when fixed-lines become a limiting factor, the industry comes up with CDMA, so on, before the bureaucrats can get their head around that, there'll be another technology.

It just beats me why when simple logic would tell you (and the data backs up the claim) that having barriers to entry, too much of regulation is just bad for business and bad for consumers, yet we are still stuck in this old paradigm of "license-permit" economic (mis)management. sigh.

“The Cost of Free Trade”

Recently the Island carried an article with the same title where the writer (a Kath Noble) goes on to explain the implications of the Indo-Lanka Free Trade Agreement (FTA). Now, I have seen worse articles on trade and economics in the Sri Lankan press, but it’s precisely the more reasonable guise of the article which makes it's errors more plausible.

Do read it in its entirety. The following are the relevant excerpts where I think she (or he) has got it wrong.

[..]Trade between the two countries [India and Sri Lanka] has increased at least four-fold, and it is now worth well over $2 billion. India had cut its tariffs on Sri Lankan goods by 2003, and Sri Lanka is due to do away with all remaining taxes on Indian imports during 2008. Free trade has triumphed, apparently.
Unfortunately, the story isn’t so simple. Taking a closer look at what has happened in practice would prompt even the most ardent believer to question the undoubtedly beguiling theory of free trade

First of all, what pass these days as Free Trade Agreements, are not really “Free Trade” agreements. If they were, then that would require only a couple of pages long document with a place to sign. FTAs usually run into the hundreds of papers, precisely because the FTAs come with all sort of conditions and clauses on which products can be imported, the tariff levels, etc. They should be more accurately called Freer/Managed trade agreements. This makes them poor benchmarks to test the “theory of Free trade”, which can be done better by looking at say, domestic trade within a country where tariffs and other restrictions do not exist. There’s absolutely nothing special about International Trade that’s also not true about domestic trade, except for the fact that people have imposed barriers on International trade.

Now, I’ve met and seen many economists (ardent free-market kind) who think of FTAs, WTO, etc as being disruptive to real free trade. I think they have a point, which everyone should hear more often, but I support FTAs because they are the only politically feasible way of getting to a point where there are no (or virtually no) restrictions on trade.

The writer continues..

[..] Free trade is supposed to be about each country focusing on the goods that it can produce most efficiently, and then selling them to others and using the proceeds to buy whatever else it needs on a level playing field. However, this is clearly not the reality. [..]

Clearly not the reality? I wonder why. Her article certainly doesn’t offer a clue.

Perhaps she’s confused with what comparative advantage is, which according to some Economists is the most misunderstood concept in economics, here’s Brad Delong’s explanation:

“"Comparative advantage" holds that we should export not those commodities that we can make more efficiently than people in other countries can make them, but those commodities that we can make most efficiently relative to the efficiency with which we make the average good or service.” (Do read the whole thing)

But one has to keep in mind when we talk about trade between “two countries” we are really talking about people in those countries and comparative advantage is very much a reality. For example, if I’m the world’s greatest cricketer and also the world’s finest clerk. The law of comparative advantage says that I should play my Cricket instead of being a clerk although I do both better than anyone else on the planet. I do what I do best relative to whatever else I do and not just do everything I can do better than others. It works much the same way for aggregates of people...like countries.

The Writer then goes into a lengthy explanation of fate of the vegetable oil industry, supposedly Sri Lanka’s major export under the FTA:

[..]Sri Lanka has been importing crude palm oil from Malaysia, putting it through a rather simple chemical process, and then exporting the end result as hydrogenated vegetable oil to India. Indian products have been undercut only because the Sri Lankan government has been imposing very little duty on crude palm oil, while India has been taxing such imports heavily.

[..]Indian manufacturers were understandably upset[..]and they began pressing the Indian government to protect them. India decided to forget the free trade agreement and simply put a stop to Sri Lankan imports. Factories stood idle for months while negotiations were underway to find a compromise solution, and everybody was relieved when the Indian government agreed to restart the trade with a fixed ceiling [..].

In fact, the dispute didn’t end there. The Indian government faced further demands from its industrialists, and it finally decided to reduce its import tariff on crude palm oil at the end of 2007. Sri Lankan products rather abruptly became no cheaper than those made in India.
[..]Sri Lankan workers are hardly going to celebrate having temporarily stolen a few jobs from their probably no better off Indian counterparts. Sri Lankan leaders will have to start worrying about the trade deficit again.

There are indeed great risks in export-dependant industries. Shift in policy can have major repercussions, especially on industries operating on negotiated policy advantages alone created by the particular trade agreement. I know a few economists who are very critical of export-led development. They criticize the strategy of “East Asian tigers” and china as being prone to bubbles and sudden shocks when the demand for their goods suddenly drops.

I’m puzzled though as to why “Sri Lankan leaders have to start worrying about the trade deficit”. Trade deficits (like the good people at Cafe Hayek often points out) are no longer a relevant statistic to “worry about”. I for example, have an increasing trade deficit with the Island Newspaper. I buy their product without ever having sold them anything. But to suggest that I’m somehow loosing out from this transaction is quite silly.

The writer then goes on to explain the plight of the pepper farmers in Kerala. The infamous problem of Farmer suicides, etc. She suggests that “Sri Lanka should be ashamed” if more and more pepper is exported to India.

Now as Nitin Pai and others have pointed out, there are major structural issues in India (some of which are common to Sri Lanka as well) which leads to the unfortunate plight Indian farmer’s face. It’s a sector where the market has not being allowed to properly operate. There are price controls, subsidies, lack of property rights, government interventions in the credit market and interventions and overall perverse incentives created by government policy (The increase of compensation for widows of suicides for example) Blaming this situation on the Free Trade Agreement is hardly prudent.

The writer concludes with some cautionary advice to India’s Minister of Commerce of the upcoming Comprehensive Economic Partnership which is bound to bring closer trade-ties, saying there is a cost to free trade.

Nobody denies there is a “cost” to trade, when two people trade a third can loose out. This is true for domestic trade as well as international, what free trade does is allows producers to increase their market potential and consumers to increase their range of choices by having access to cheaper goods at lower prices. It increases wealth in people and therefore countries. But there will be cost to some people, the writer will have to realize you can’t have the cake and eat it too.

Related Links : The Island Article, Paul Krugman on comparative advantage, Cris Lingle's lecture, Jagdish Bhagwati and more at Deaned on free trade.

Competing currencies: putting the Central Bank out of business.

The Inflation in Sri Lanka is now at about 20%, and the Central Bank expects the figures to remain at 16% to 20% at least for the first half of 2008. It’s getting so unprecedented now, that it’s receiving some attention from international monetary experts. Over in the U.S. too they have problems with their currencies, the Dollar is loosing value against other currencies at record levels.

So the question is when certain currencies under performs say the SL Rupee or the Zimbabwean Dollar, why wouldn’t the market choose other currency instead? (Economists call this dollarization – replacing a countries currency with currency from another country – e.g. US Dollars) While the Central Bank may have the monopoly authority to print money in Sri Lanka, what stops the market from choosing foreign currencies? Why wouldn’t for example, retailers in Colombo declare, they “now accept Euros, Dollars and Pounds for transactions" and consumers follow suit. After all, most retailers support multiple types of credit cards and modes of payment, why not different currencies? It’s a question I put to FussBudget of LBO, who’s possibly one of the few Sri Lankan economists who’s taking the issue of Inflation head on. Here’s his response:

Deane,
Good one ! It is legal tender laws that bar you from accepting for payment or keeping foreign currency with you. You are barred from even keeping dollars with you. These exchange control rules were a little relaxed last year. But still you have to deal in Sri Lanka currency and keeping large quantities of foreign currency is still illegal.

Foreign exchange is subject to exchange control as well as customs laws here, and the govt could not only confiscate them and land you in jail but also fine you 300 percent.

By allowing NRFC accounts Sri Lanka slightly relaxed the monopoly on savings in local currency some time ago.

When people keep dollar notes, keep travellers cheques without changing and NRFC accounts it chips away at the note issuing monopoly of a government. (Notes - reserve money - deposits - M2). The liking for foreign currency and the distrust of the local currency is due to the loose monetary policy of the central bank.

However with tighter monetary policy since 1995, when the Central Bank changed from a pure inflationary money printer to something that at least tried to keep inflation in check we have seen a slight change in the situation and confidence increasing in the local currency.

As you know at one time the US banned citizens from holding gold through legal tender laws.

Deane, your friend Ron Paul is asking for competitive currencies inside the US. In the US though gold is no longer illegal to hold, it is still taxed when traded. This makes it less easy to challenge the dollar monopoly.

At the moment we have a 100 percent reserve backed currency. That means if govt wants, they can dollarize Sri Lanka tomorrow and eliminate high inflation.

While the Euro is obviously the best currency to dollarize to keep inflation as low as possible, for purposes of exports it may be better to dollarize with US dollars to prevent a big shock to the industrial sector.

As you know a currency board is also the same as dollarizing in a practical sense - except that we will have notes of a different colour.

If you followed Yugoslavia, there was dollarization with the German mark, when hyperinflation struck. Then you had the situation of currency boards, Euro union etc.
Here the debate about monetary reform has been muted until now. With Steve Hanke also getting into the picture now the 60 years of deception practised by the central bank on the poor of this country is also getting chipped away. [Link to comment. The Links, emphasis in the quote are mine]

Well, whad’ya know, I’m a criminal. Hopefully none of the custom’s chaps read this blog. I have from recently actually kept some of my savings in foreign currencies instead of Rupees.

I knew there was probably a truck-load of regulation preventing a market-led dollarization from ever happening (in any country, really) but I didn't know the exact provisions in Sri Lanka.

FussBudget’s (who’s real identity I do not know) reference to Ron Paul is an exchange we had before and a few days ago Ron Paul – whom I backed for U.S. president – made a speech in the house floor asking congress to consider the concept of “competing currencies” . Here is a relevant excerpt:

At this country's founding, there was no government controlled national currency. While the Constitution established the Congressional power of minting coins, it was not until 1792 that the US Mint was formally established. In the meantime, Americans made do with foreign silver and gold coins. Even after the Mint's operations got underway, foreign coins continued to circulate within the United States, and did so for several decades.

On the desk in my office I have a sign that says: “Don't steal – the government hates competition.” Indeed, any power a government arrogates to itself, it is loathe to give back to the people. Just as we have gone from a constitutionally-instituted national defense consisting of a limited army and navy bolstered by militias and letters of marque and reprisal, we have moved from a system of competing currencies to a government-instituted banking cartel that monopolizes the issuance of currency. In order to introduce a system of competing currencies, there are three steps that must be taken to produce a legal climate favorable to competition. [link] (Emphasis mine)

None of this will probably happen for a very long time. But I’m glad the debate has started.

Markets in Everything

Tyler' Cowen's "Markets in everything" posts are now compiled into its own website. An awesome read.

Cultural Globalization

Tyler Cowen has an interesting piece on the topic over at Mint. The article pretty much echoes what Cris Lingle had to say at a forum I was involved in late last year. The backlash against cultural globalization is inevitable and understandable. A group of people in every society have certain attachments to what they perceive as “their culture” and whenever those traits are seen to be disappearing rapidly; there will be a backlash from some quarters. Cris called this a “Clash of Generations”, he saw it as a battle between young people who want to change things around while the generations before wanting to keep things the way they are. That’s probably true, although I could show few young people who’d viscously defend what they call the “Sri Lankan Culture”.

This backlash, as Tyler argues is healthy as it keeps things in check, as long as one keeps a sense of perspective. It’s perspective that’s unfortunately missing from those who oppose this inevitability.

Cultural globalization is made to be seen as something which comes only from “them to us” and in most cases simply put down to “Americanization”. This clearly is not the case. First of all when “it” does indeed comes from “them to us”, it doesn’t arrive pre-packaged, in fact its always localized, after all (contrary to what left-wing conspiracy theorists may tell you) the “west” is not out to colonize everywhere else, they (and by they, I mean those companies) are just here to make some revenue for themselves. The only way they can do that is to give us something we’d want to have. Tyler notices this when he says,

..some of the chains such as McDonald’s bend towards local taste with curry and tikka and lamb burger. Going out to eat is often more for the air conditioning than for the food.

I can think of many more examples, but most striking perhaps is what I encountered in Bangalore where I found a KFC restaurant with a vegetarian section. That’s right. Kentucky Fried Chicken has a pure vegetarian section. In Sri Lanka too the KFC’s, McDonald’s sells their version of Kottu. Not to mention the many Chinese restaurants serving what’s probably closer to local food than Chinese.

Tyler also speaks about the flip side,

In my home town of Fairfax, Virginia, it is now easier to get a good dosa than a good hamburger, but it still feels like America, albeit a different America than that of 1953.

Tyler of course doesn’t worry much about this, but there are people in the U.S. who especially in light of the emerging population patterns, issues of identity will become an emerging topic in U.S. politics. I’d say everyone should appreciate humanity and just take a chill pill, cultural globalization is inevitable, but it certainly won’t be Americanization nor one-way traffic. Sri Lankans are more likely to wear Kurthas and sing Baila than to flip burgers while listening to dirty rap.

Read Tyler Cowen’s article and Chris Lingle’s talk.

Get it right on free trade

Cafe Hayek points me to a nice op-ed on Free Trade on the NYTimes, Here's some relevant excerpts,

I doubt there’s a human being on earth who hasn’t benefited from the opportunity to trade freely with his neighbors. Imagine what your life would be like if you had to grow your own food, make your own clothes and rely on your grandmother’s home remedies for health care. Access to a trained physician might reduce the demand for grandma’s home remedies, but — especially at her age — she’s still got plenty of reason to be thankful for having a doctor.

Some people suggest, however, that it makes sense to isolate the moral effects of a single new trading opportunity or free trade agreement. Surely we have fellow citizens who are hurt by those agreements, at least in the limited sense that they’d be better off in a world where trade flourishes, except in this one instance. What do we owe those fellow citizens?

One way to think about that is to ask what your moral instincts tell you in analogous situations. Suppose, after years of buying shampoo at your local pharmacy, you discover you can order the same shampoo for less money on the Web. Do you have an obligation to compensate your pharmacist? If you move to a cheaper apartment, should you compensate your landlord? When you eat at McDonald’s, should you compensate the owners of the diner next door? Public policy should not be designed to advance moral instincts that we all reject every day of our lives. [..]

For many decades, schoolyard bullying has been a profitable occupation. All across America, bullies have built up skills so they can take advantage of that opportunity. If we toughen the rules to make bullying unprofitable, must we compensate the bullies?

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted. When a free trade agreement allows you to buy from the Mexican after all, rejoice in your liberation. [link] (emphasis mine)

The full article is worth a read and true for any economy in the world.

Opposition to free trade is not a current topic in the political discourse in Sri Lanka, partly because the politicians have much better things to talk about. In fact Sri Lankan politics has recently degenerated into just partisan finger-pointing instead of actual discussion on politics.

Even when some of these issues became relevant around the 2004 election, the anti-trade arguments rested obscure anti-westism bordering on economic nationalism, which needless to say, is a whole lot of nonsense.

Comercial Sex Monkeys

According to one study, monkeys pay for sex. that's right, there are monkey-whores. .um I mean commercial sex workers. This is what TIME says,

It turns out that one of humanity's oldest professions may be even older than we thought: In a recent study of macaque monkeys in Indonesia, researchers found that male primates "paid" for sexual access to females — and that the going rate for such access dwindled as the number of available females went up.

Hell. they even understand economics. more..

The macaques' [monkeys] exchange of services simply illustrates a nifty system of cooperation that allows for successful mating. The basic premise, says Gumert, is called biological market theory, which follows the elementary principles of supply versus demand. When applied to the voluntary sex life of long-tailed macaques, it means that the price that one group is willing to pay for a commodity that the other group has depends on the scarcity or abundance of that commodity on the market. Scientists think female macaques may use grooming, too, to try to maintain social relationships within the group to benefit their offspring, or as a way to distract or appease males from getting aggressive after a sexual encounter. In fact, when female macaques groomed males, their services decreased sexual activity in males. [Read in Full]

See, this is why we should legalize Prostitution. i meant it's totally evolution, we cant regulate evolution and besides there are no reports of monkey-pimps or violence. Just free-exchange, and everyone's happy.

Next Step, monkey sex-ed. Use protection you monkeys!

chick peas and green gram for the new year

That's what Bandula Gunawardene wants you to eat next year.
From the bottom-line,

With the price of flour shooting up by Rs. 9 per kilo with immediate effect, Minister of Trade and Consumer Affairs Bandula Gunawardena yesterday demanded Sri Lankans not to rely on wheat flour instead, cultivate and consume more chick peas and green gram as an alternative to flour Reacting to the announcement from Prima, the minister told The Bottom Line that there was no point in taking legal action against the flour company again.

“Already three cases are pending in courts with regard to Prima irregularly increasing flour prices, sans approval from the Consumer Affairs Authority,” he said.

“So, until the court decides, we ask the public to cultivate grains and to eat chick peas and green gram,” Gunawardena said. (emphasis added) [link]

Sigh. There's a reminder that we haven't progressed much from the days when the government dictated what we have for lunch. So much for the "Open Economy". I wonder why the bright heads at the Ministry haven't figured out why there is a monopoly in the first place, here's a pointer - get rid of the consumer affairs authority. But wait, no wonder they wont figure that out, nobody likes being unemployed.

SEZs for Sri Lanka?

I was in India when the Nandigram incidents took place, it was around March and I was traveling all over North India. At the centre of the disputew were land acquisitions meant for a Special Economic Zone(SEZ), initiated by the West Bengal State Government (controlled by the Communist Party of India - Marxist, no less) for a chemical hub by a private company. The SEZ required the acquisition of 14,000 acres (57 km²) of land mostly from Nandigram. On this particular day (March 14, 2007) there was a standoff between policemen (some of whom were CPI(M) cadres in police uniform) and the villagers, ultimately resulting in 14 people being killed from police gunfire.

My work in India required me to be away from the TV most of the time, but I did manage to catch glimpses of the unfolding story and ever since I've kept a close-eye on news about SEZs.

Now, "Export Processing Zones" is hardly anything new , even Sri Lanka has what’s known as Free Trade Zones (FTZs). They are basically a designated area where the trade barriers are relaxed – tariffs lowered, duty slashed, etc. The area generally benefits from good infrastructure and what’s called an 'enabling environment' to promote exports and attract Foreign Direct Investment.

However SEZs, experimented quite extensively in India, China and elsewhere is a bit of a different animal. First of all they tend to be huge. Shenzhen – China’s first SEZ – spreads over a land area of about 334 km², that’s roughly about 9 times the city of Colombo. India, which now has approved nearly 400 SEZs in all of its states, has allowed for sites the size of 50km² for SEZs . So I repeat, they are HUGE, often covering the size of modern day cities. SEZs, like Free Trade Zones have relaxed trade rules, except they are more relaxed...much more relaxed. SEZs in India have been declared "foreign territory" for purposes of trade, duties and tariffs. They are exempt from customs, excise, service, Sales and local taxes. Most of them are run by private companies, including some foreign-owned ones. They have duty concessions on some imports, relaxed labor laws and the state government provides such services as electricity and water. I've seen some of them, they do look really pretty. So much so that Sri Lankan companies such as Brandix have invested in some of them.

On paper SEZs looks perfect - it would increase employment, help exports, encourage investment and provide a way for companies to escape illogical tariffs and taxes imposed on them and step into the world of free enteprise. Everything is great, except for the fact that setting up a SEZ involves land acquisitions, often forced on people not willing to move out from their property. This is where it gets messy, forcible land acquisitions creates a whole host of problems - displacement, inadequate compensation, loss of livelihood for the people involved to mention a few.

These issues have made SEZs a subject of much criticism from across the political spectrum. For the people on the left, this is part of the latest Capitalist conspiracy to satisfy their greedy lust for money at the expense of the poor. For the people to the right, its a violation of private property rights (see Shruti Rajgopalan's excellent critique here)- the one thing that's so critical to the effective function of the free-market system, that people like Hernando De Soto have written books about it.

Being a student of the subject I have met many people falling into both these camps, with one the one unified conclusion - SEZs are just bad. Except of course many people I've not met, including the Times of India columnist, Swaminathan Aiyar who has argued (here and elsewhere) that SEZs could be good thing, if handled properly. He recommends leaving the residential areas intact when developing the SEZs, and making affected people equity holders of the new projects, making the villagers landlords and companies their tenants. Quite a transformation.

Although, I'd principally defend property rights, I can back Aiyar's suggestions. So can the model be replicated in Sri Lanka ? Absolutely. Especially for a president, who like to harp on development and seems to want (genuinely or not I don't know) to develop both the South (primarily Hambantota) and the Eastern province, SEZs should definitely be a development tool which needs to be explored. Both provinces have natural ports and certainly the Eastern province can use a bit of accelerated growth.

Personally, I'd prefer Free Economic Zones, that is large designated areas with much like the rules of SEZs but not necessarily a privately managed chunk of land, a Hong-Kong experiment of sorts. Designated SEZs can still exist, of course. The East (in a world where a degree of rule of law is established) would be a perfect candidate for something like this. Trincomalee port can be made into a privately owned freeport. But now I'm just taking it a bit too far.. or is it?

Related Articles :

• How not to displace people (S. Aiyar)
• Indian Property Wrongs (Shruti)
• Free Cities
• The Hong Kong Experiment (Milton Friedman)
• SEZ FAQ
  

For an irrelevant Democracy

‘Democracy’ and ‘Crisis’ are words we have come to associate them in the same sentence.

In this site and elsewhere, many people have lamented over the conduct of the present administration; Its blatant disregard for anything remotely ‘democratic’ – be it in a lack of accountability in public finances, due process of parliament or a total disregard of the freedom of the press, the Rajapakse administration have both directly and indirectly communicated that such democratic nuisances are too much of an inconvenience, especially ‘when fighting terrorism’.

One can, being good citizens of what is still, at least a quasi-democracy; place the blame squarely on the President, his brothers, the hundred-something ministers and hope the blame game would lead to some sort of a balancing effect. This could well be the case. But could it be that the conduct of the Rajapakse regime is just a manifestation of a very old problem which keeps on repeating itself? Could it be that the problem is in not just the conduct of the ruler, but of democracy itself?

Read the rest of the post in Groundviews.

What’s free in free education?

Since the dead C.W.W. Kannangara recently celebrated his birthday, I thought I’ll recycle an old blogpost I never quite completed..
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Sri Lanka is said to have a free education policy, the state providing education at primary, secondary, and undergraduate levels free of charge. But is that really what is meant by the term ‘free education’ ? after all its Sinhalese equivalent is ‘Nidahas Adhyapanaya’.

Now, the word ‘Nidahas’ – as people who speak Sinhalese would know – is a reference to freedom and not price. (See Free Software for a similar analogy)

That, I believe is the spirit in which education must be approached in this country. Instead of focusing on the provision of education, the government must shift its focus on making sure that education is received.

Sadly due to visionless and insecure set of politicians, and an even more insecure set of ‘undergraduates’, the freedom to learn in this country – at least when it comes to higher education – is non-existent. There is no real ‘free education’ in Sri Lanka.

Each year more than 200,000 odd Sri Lankans sit for the cursed A-Level examinations, out of which a bit more than 50% of come out on top, all of whom are eligible for University entry. Yet the 15 state universities in Sri Lanka can only accommodate roughly about 16000 of those students. A pathetic 14 % of those who are eligible.

Few who couldn’t get into the 14% find places in the professional courses, or external degree programs. Those who can afford it go abroad, to US, UK, Australia, India, Malaysia and increasingly places like Belarus, Bangladesh and China (yes, china. we got so hooked up on blaming everything on the ‘open market’, that in some ways we are now more communist than china! take that.) Still others who could afford private colleges here attend them, severely limiting their choice of courses.

The rest of them are told to farm, the Mahinda Chintana would give fertilizer for 350. After all we are an ‘agricultural country’, our ancestors have been doing it for 2500 years, and it also boosts the ‘national economy’ and help our country become ‘self-sustained’ by 2010. Joy.

Reality though, bites.

Some time ago, I was quoted by a friend of mine on a Daily Mirror Article on Higher Ed. Reform (this is sort of me):

“I feel that you need to let private players into the market, and actively promote them via tax holidays, provision of land etc. I also feel a public private partnership model where existing public universities become affiliated with certain private colleges like the BIT system should be adopted. This is what's happening in India. Its win-win situations where more people get higher education opportunities.”

Now, I’m a tad bit misquoted here. I never mentioned BIT, which is an external degree. I also didn’t explicitly mention PPP’s, a conept I’m usually not fond of.

I am more interested in seeing existing universities (in addition what they are already doing) be accreditation bodies and award not external degrees, but internal degrees with no difference being made whether students are internally studying in the university or not.

That’s what’s happening in India and here in colleges like APIIT, ACBT, ANC, etc. with internal degrees of Monash, Staffordshire, and Westminster offered here. Surely that can happen for local universities, and if these institutes are able to measure up to the standards of say, Monash, they can’t be far off from say um, Sabaragumwa.

This I’m afraid is the only way of increasing access, we can’t wait for the bright day when ‘corruption would stop, mismanagement would stop, and state become efficient’ like quasi-socialists or people in the JVP-backed ‘Antharey’ feels.

Its time to step out from moronic idealistic beliefs and face reality – higher education in this country sucks. Not enough people can access it. Just ask the President and plethora of ministers who send their kids to universities in the UK.

I won’t quarrel with Kannangara, he made a policy that might have suited his time. What’s clear now is that it’s no longer suited, certainly not in higher education. Changes quite simply must come and if anyone (or any party) has the balls to make it an issue, I think it can be done.

Time to put 'freedom' back in 'free' education.

Obstacles to growth: Can Amunugama walk the talk?

The Rajapakse government certainly has more than its share of morons, who are more than willing to open their mouths and forget about their heads. Keheliya Rambukwella of course has the official designation closely imitated by other aspirants such as Jeyaraj Fernandopulle and that 5th minister of Nation Building, I forget his name.

So it’s not often when you hear something sane from a Sri Lankan Minister, something like the speech Sarath Amunugama delivered highliting the obstacles to growth in Sri Lanka.

Amunugama has always spoken candidly about the need for reform, when he was the Minister of Finance from 2004-2005, he very clearly emphasized the need for reforms in energy, and railway sectors. His speech makes for a wonderful read and a clear example of politicians, at least the educated ones knowing what to do, but somehow not being able to implement it.

Here are some excerpts from the speech: (original speech is well worth a look)

We are meeting at a time when there is unprecedented growth in the world as well as within our region. The world economy is growing at a rate of 5% a year, which is a historic growth rate. This unprecedented growth is driven by the economies of China, India, Pakistan and what are called the Eastern tigers. They are Singapore, Malaysia, Thailand, Philippines, Indonesia, Borneo and the rest. All these countries are reaching double-digit figures in growth. A 10% growth every year has become a reality in our region. Just a few decades ago, economists had contempt for the pace of development in our region, calling it the ‘Hindu rate of growth.’ We may also call it the “Buddhist rate of Growth”. That the 1% to 2% growth of GDP which we achieved under so called “Socialism” and a controlled economy.

We were thinking of the next world and not of this world. We were thinking of Nirvana and not of how to give a good life to our people. That is a state that we have now rejected. It is a tragedy that while there is a rapid growth in our region –including countries like India, Pakistan which were far behind us- that Sri Lanka is not today the leader of that growth trajectory. [..]

we are being left behind by our neighbors –even Maldives- due to wrong policies. Now the question is how do we reach double-digit growth which has become standard for our region?

That is the challenge before us. One of the main obstacles to reaching those double-digit figures is the disparity in the growth between the Western Province and rest of the country. If we take the GDP of Western Province we have reached about 12% growth. This is the equivalent of the growth figures for India and China. So nobody can say that Sri Lanka is incapable of rapid growth. [..]

We have free trade agreements with India and Pakistan. We are now negotiating Trade Agreements for the whole SAARC region. Sri Lanka is the only country in Asia that has GSP+ status with the EU countries where almost 7000 items can be sent from our country to Europe, duty free. As a result, there is a large-scale growth in Western Province. [ ..]

Why is it not working in the other areas? For example, why is there such a big gap in the growth figures of Western Province and Central Province, Uva and Sabaragamuwa? Unfortunately, we have to leave North and East out because of the war situation. Those two districts which are very well known for people who believe in hard work and industry will definitely give us the balance growth figures if we have peace.
[..]
We have mega problems regarding the provision of basic infrastructure. That is to say transport, power, energy and Ports. We have a power generation plan which calls for an annual increase of 10% of growth in electricity. Only then can we match a 10% annual expansion in the economy. [..] And now, we have a backlog.

We have failed miserably to provide electricity as needed. [..] We have several vital power projects which unfortunately are getting slowed down. One of the important things we must do for economic growth is to reform the power sector. Unless we have abundant power we cannot progress.

We have a crisis in Sri Lanka because unions are fighting. Engineers are fighting and politicians are fighting. Nobody takes decisions. And as a result Sri Lanka is slipping in power production when it is a vital ingredient of economic growth. […]

There are diesel lobbies in this country. They obstruct the private sector in power supply, which to my mind, is the one way in which we can have fast growth in power. The CEB must learn to share power in the power sector. The government must certainly do its job but equally important it must help the private sector. If we rely entirely on the public sector for power supply, Sri Lanka is dead.

Very many of our policies are outdated. If you have outdated policies then the result is obviously going to be failure. Now I am not saying something very controversial. Look at what happened to Communist countries. Look at what is happening in China today. All these countries had controlled economies. Controlled economy is outdated like a dinosaur. But in Sri Lanka some people are still talking about a controlled economy, when the whole world has given it up as a terrible failure. We can never survive with that type of outdated attitude.

We must have policies which take note of reality. The first reality is the globalization process. The Western Province is the only province in Sri Lanka which has not pulled the plug. It is linked to globalisation. Some people are talking about “[sinhala world printed incorrectly]”. If so, you can become the poorest country in the world. You can be like Cuba which is struggling today. As a small country we must plug in to the global economy, and only Western Province has done so up to now. Western Province has the airports ; it has the harbour. Every investor wants to put up his factory close to the harbour or the airport. Those are the realities. What happened to those investors who went out of Western Province? They are finding it very difficult to maintain their competitive edge.

They prefer to go to India than go out of the Western Province. That is the reality. Some of our businessmen are going to Africa and not to our own hinterland. Why is that? That is because we do not give enough incentives for balanced growth.

[..]
Of Provincial Council budgets as most of you know more than 75% is spent on paying salaries -Teachers’ salaries, which was done earlier by one department in Colombo. They are doing hardly anything else. There is now a committee of Chief Ministers which is the biggest joke of the 21st century. Really there is nothing to cooperate. They must compete with each other. The only way a province can draw investment is by giving more concessions than its rivals. They should compete: not cooperate.

If one Chief Minister has the courage to say we are not taxing you, we are giving you free electricity, we give you free water; investors will rush to that Province. Why there is unemployment in the Provinces is largely due to the wrong policies of Chief Ministers and other politicians in Provincial Councils.

I find today they are talking of new taxes like cross border taxes. Then nobody will come to that Province. If you are going to have so many taxes in the provinces, who will come there? Why should investors come there? Already an investor is at a disadvantage by not having access to the airport and the port. So why should they come to Provinces? Provincial Councils must compete. If I am the Chief Minster of a Province I know how to make it the richest province in Sri Lanka.

[..]

The third obstacle I want to mention is Bureaucracy. That is you and myself in the past. We are the worst bureaucracy in the world. When it comes to protocol , when it comes to speechmaking, when it comes to pandering to politicians, we have one of the best bureaucracies But when it comes to coordination and development, we are the worst. [..]

Today to get a project off the ground we have to get about 20 approvals. All sorts of crazy fellows have to give their approval before you can start a project. [..]

Please look into all these things in a way that is pro developmental, not pro prestige or pro bureaucratic. We have to shake up Public Administration so that people who want to crate wealth in this county are allowed to do so. Now a lot of people think that this is Capitalism. That is so. Sri Lanka is a Capitalist country. Commercial agriculture is 100% privatized. Except for the inefficiently run JEDB and SPC which at the end of the month come to the Ministry of Finance to collect public funds to pay their staff, the private sector runs commercial agriculture successfully.

Government enterprises are running at a loss. When I was the Minister of Finance I told them I am not giving you poor people’s money. You sell your buildings and settle your debts. Why should a taxpayer pay all those inefficient managers in the SPC and JEDB? We should not pay a cent.

Today telecommunications is the fastest growing sector in Sri Lanka. Banking, posts and telecommunications, tourism and finance constitute the service sector which is growing at 60%. The fastest growing sector in Sri Lanka is the services sector and not the manufacturing sector or the agricultural sector.

The fastest growing areas in Sri Lanka are manned by the private sector. Look at telecommunications. All of you who were in the public service 10 years ago, would have had to wait at least 5 years to get a telephone. And even after 5 years, and you have written to a big shot in the telecommunication department to install that phone, you get an antiquated instrument. I can remember that when I was a Government Agent I asked for a telephone and got someone else’s discarded instrument.

Today if you want a phone before I finish this speech you can get one. [..]

The most inefficient sectors in our country are sectors where the private sector has been left out. That is Railway, Petroleum and Electricity Board. These three areas where there is no participation of the private sector, are a tremendous drain on our economy. They are inefficient and not cost-effective.
[..] everyday the Petroleum Corporation or Electricity Board loses money enough to build a general hospital? Similarly, we can have over 100 universities a year in Sri Lanka. So what are we talking about the state sector? In India and China they are dismantling the grip of the state sector on the economy. That is why they are successful.
So the money which we should be spending on infrastructure development, on growth, is given to the inefficient Petroleum Corporation, Electricity Board, State Plantations corporation and the Railway Department. All these institutions are just guzzling money and preventing that money from going into the areas where investment is needed, particularly in the provinces
.
Today there is no USSR. The communist state which depended on State institutions has collapsed. [..] It is useless writing to Sinhalese papers about Samajawadaya (Socialism) and Castro when the whole world has moved away to a new capitalist society.

If you read the Sinhalese papers you will think that we are in the 19th century. They are teaching such nonsense in our schools. Socialism has contributed much to social justice but as an economic methodology, it is a disaster.

So it is high time that we grew up; high time we looked at what is happening in the world. Sri Lanka need not be a poor country. Sri Lanka is a poor country because all of us have made it poor. We are keeping it poor. Sri Lanka can be one of the richest countries in the world. We have the potential, we have skilled people, ours is a small population and we have wonderful natural resources.

But all of us have conspired to keep it as a poor country.

So we must all get together and face reality and give our people the future that they deserve.

Read the full speech

No one could have said it any better.

It’s a pity that even the supposedly pro-market UNP seems to be embarrassed by their own position, an indication of how success Marxist (and jathika-economics) propaganda having demonized even the word ‘privatization’.

As much as I have much admire Amunugama for having the ‘balls’ to say what should be done, nothing can be done unless and until more people start speaking up. The ‘war’ isn’t the only problem in this country, as Amungama points out there are serious problems in education, transport and energy and power sectors and the massive size of this beuracracy which desperately needs reforms and liberalization.

The sad part is most in the government ranks – from Moragoda, to Bandula Gunawardene to Ajith Nivard Cabral - knows this, and yet they go ahead and let the government abolish the PERC. One of the few government institutions that they should have kept!

Whatever happened to sanity in this country, I will never know. But at least Amunugama has shown the way, now if only others could follow..

A Market for the poor

Often you'd find free-market proponents counter questions like “so, what about the poor?” by arguing that if the market is free enough it would, given time, service the poor.

The notion is of course true, for most things. A profit seeking company doesn’t mind where their money comes from as long as it arrives. So you’d find cheap version (sachet packets) of common consumer items like soap or washing powder.

It is generally conceded that the so-called ‘luxury items’ rarely compete in this consumer market.

The Mint reports on an interesting scenario where the likes of Microsoft and Intel are cramming for space in the Laptops-for-the-poor Market.

“A programme to provide millions of low-cost laptops to students in poor countries is set to start production in September even as commercial competitors prepare to offer even cheaper models.

The idea from Nicholas Negroponte, a co-founder of the Massachusetts Institute of Technology Media Laboratory, who proposed the project at the World Economic Forum in Davos two years ago, has moved closer to fruition.

..

“OLPC is in talks with Argentina, Brazil, Uruguay, Peru, Nigeria, Thailand, Pakistan, Russia, Rwanda and many other countries—but nothing definite just yet,” she said.
The new computers will not carry the symbolic price tag of $100 (Rs4,100), at least not right away. The first models will cost $175 and OLPC hopes the price will come down to $100 by 2009.

Negroponte wanted to have an innovative, specifically tailored laptop—called the XO— that would be very small, hardy, user-friendly and use the free Linux operating system, not Microsoft’s Windows, which dominates the world market.
…

The sharpest critic of the project is the world’s leading chip maker Intel Corp., which has dismissed the XO as a “gadget” and launched a rival commercial product.
Intel’s “Classmate,” manufactured in Taiwan, costs $285 and the price will drop to $200 at the end of the year, said Intel spokeswoman Agnes Kwan.

Several thousand units have been shipped to Brazil, Mexico and Nigeria, she said, and the target is 100,000 laptops by December. Pakistan has ordered 700,000 for 2009, she noted.

Aghast at this commercial rivalry, Olpc’s Negroponte said recently that “Intel should be ashamed of itself.” He accused the US microprocessor giant of selling the laptops below cost to destroy the XO, a charge Intel has denied.

Soon OLPC will have to contend with even more aggressive Indian competitors. The group Novatium Solutions Pvt. Ltd, based in Chennai, just brought out a basic “NetPC” for Rs3,280 ($80).

The market for the poor has become so enticing that Microsoft is preparing to launch a scaled-down software bundle of Windows and Office for three dollars for qualifying governments. ”

[Selected Quote: See full Article]